MIB Master of International Business: Multinational Financial Management 5

Question 1

When evaluating a foreign direct investment project, the 'adjusted present value' (APV) method separates project value into:

Accepted Answer

Base-case NPV assuming all-equity financing plus PV of financing side effects

Answer

APV calculates the project's NPV as if entirely equity-financed, then adds the present value of financing benefits such as the tax shield on debt and subsidized loans.

Question 2

A US firm with a euro payable in 90 days buys a euro call option as a hedge. The maximum cost of the hedge is:

Accepted Answer

The option premium paid upfront

Answer

With an option hedge, the worst-case cost is the premium paid; if rates move favorably, the firm can let the option expire and buy euros at the better spot rate.

Question 3

Which scenario illustrates 'leading and lagging' as a technique for managing intra-firm currency exposure?

Accepted Answer

Accelerating payment of a payable in a currency expected to appreciate

Answer

Leading means accelerating payment of a payable in a strengthening currency to avoid paying more later; lagging means delaying payment of a payable in a weakening currency.

Question 4

The 'eurocurrency market' refers to:

Accepted Answer

Deposits and loans denominated in currencies held outside their country of origin

Answer

Eurocurrency markets involve bank deposits and loans in currencies held outside the country that issues them (e.g., USD deposits in London banks), free from domestic banking regulations.

Question 5

A global firm wants to minimize worldwide tax on intercompany royalty payments. Under the arm's length principle, royalty rates should be set based on:

Accepted Answer

Comparable royalty rates charged between unrelated parties for similar intellectual property

Answer

The arm's length principle requires that intercompany royalty rates reflect what unrelated parties would negotiate for comparable IP in comparable circumstances.

MIB - Master of International Business Practice Test

MIB - Master of International Business Practice Test

MIB Master of International Business: Multinational Financial Management 5